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Japan's Takeda Seeks to Expand Overseas

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November 02, 2016

TOKYO?A potential $10 billion deal shows how Japan's largest drugmaker by sales, Takeda Pharmaceutical Co., is placing its bets on the U.S. and Europe for growth under its French chief executive, Christophe Weber.

Takeda said Wednesday that it was on the hunt for global acquisitions after The Wall Street Journal reported that it was in advanced talks to acquire a stomach-drug business from Valeant Pharmaceuticals International Inc.

Takeda declined to comment specifically on any potential deal with Valeant but said it was "aiming to accelerate its growth" and was "in discussion with many parties" about deals for drugs treating stomach diseases, cancer and other areas.

People familiar with the matter said Takeda could reach a deal with Valeant for Salix Pharmaceuticals Ltd., which Valeant bought a year and a half ago. The deal size could be about $10 billion, including $8.5 billion in cash and future royalty payments to Valeant, they said.

If completed, the deal would build on Takeda's past success with heartburn drugs and underscore that the Osaka-based company sees the U.S. as its core growth market.

Takeda has staked its future on growth overseas after making two big purchases?Millennium Pharmaceuticals Inc. in 2008 and Nycomed A/S of Switzerland in 2011 for a combined total of about $23 billion.

Takeda shares closed down 2.1% in Tokyo trading Wednesday compared with a 1.8% fall in the benchmark Nikkei Stock Average.

"The market is concerned that a large-scale acquisition would lead to a dividend cut. We see a low risk ofa dividend cut if the purchase price is up to around $10 billion," said Shinichiro Muraoka, analyst at Morgan Stanley MUFG Securities.

Mr. Weber was chosen in 2014 as the first non-Japanese executive to run Takeda. He quickly ran into turbulence when some shareholders contended that the acquisitions spearheaded by his predecessor, Yasuchika Hasegawa, weren't working out and compared the naming of a Frenchman as CEO to a hijacking by foreign capital.

Mr. Hasegawa said Takeda needed to move boldly to make up for drugs losing patent protection, and Mr. Weber said he would preserve the traditions of Takeda, a company founded in 1781.

A year after Mr. Weber took the post, the company settled U.S. suits charging that Takeda hid the cancer risk of its Actos diabetes drug. Takeda said it believed the plaintiffs' claims were without merit but agreed to make payments of up to $2.4 billion, forcing the company to post its first annual loss since it was listed in 1949.

Results have turned up since then. For the first fiscal half through Sept. 30, Takeda reported its net profit more than doubled to ¥ 124 billion ($1.2 billion). It also raised slightly its projection for full-year profit.

The higher profit is partly thanks to Entyvio, an injected drug for ulcerative colitis and Crohn's disease that came from the Millennium acquisition. Entyvio has helped make up some of the gap created by the loss of patent protection on longtime blockbusters including Prevacid, a heartburn drug, that drove Takeda's profits during the 1990s and 2000s.

"Takeda's transformation road map is starting to translate into improved financial performance, as demonstrated by the company raising its guidance, albeit only marginally," said Jamie Davies, head of pharmaceuticals, medical devices and health care at BMI Research.

Mr. Davies said he expected Entyvio to generate annual sales of $2 billion within the next 18 months.

Salix Pharmaceuticals, the company acquired by Valeant in April 2015, has a drug for irritable bowel syndrome called Xifaxan. Should Valeant sell the Salix business to Takeda, the Japanese company's experience with drugs for stomach and intestinal diseases could help it boost Xifaxan sales, which have fallen below some analysts' expectations.